New Developments in Options and Volatility-Based Benchmarks

Transcription

1 CBOE Risk Management Conference Asia New Developments in Options and Volatility-Based Benchmarks Bruce Traan, Director Research & Product Development November 30, 2016

2 Forward Looking Statements This presentation may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of Forward-looking statements are those statements that reflect our expectations, assumptions or projections about the future and involve a number of risks and uncertainties. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause actual results to differ materially from that expressed or implied by the forward-looking statements, including: the loss of our exclusive licenses to list certain index options; decreases in the amount of trading volumes or a shift in the mix of products traded on our exchanges; legislative or regulatory changes affecting the options markets; increasing competition by foreign and domestic entities, including increased competition from new entrants into our markets and consolidation of existing entities; increasing price competition; our ability to maintain access fee revenues; economic, political and market conditions; our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; our ability to accommodate increases in trading volume and order transaction traffic without failure or degradation of performance of our systems; our ability to protect our systems and communication networks from security risks, including cyber attacks; our ability to attract and retain skilled management and other personnel; our ability to maintain our growth effectively; our dependence on third party service providers; and the ability of our compliance and risk management methods to effectively monitor and manage our risks. More detailed information about factors that may affect our performance may be found in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2011 and other filings made from time to time with the SEC. 2

3 New Trends in Strategy Indexes Demand for passive investment continues to grow Smart-Beta is the fastest growing segment of passive investing Combines best of passive, active and alternatives Research-driven strategies to achieve benchmark outperformance Systematic approach intuitive & lower cost Alpha capture improved with cutting edge exposures Attractive risk-adjusted returns vs. strategy complexity Options & futures are becoming the new tools to build strategies that offer compelling risk/return profiles Content / Education innovation 3

4 New Trends in Strategy Indexes Growing demand for new strategy-based indexes CBOE Russell Delta BuyWrite Index CBOE S&P 500 Smile Index CBOE Target Outcome Indexes CBOE S&P 500 Buffer Protect Strategy Series CBOE S&P 500 Enhanced Growth Strategy Series CBOE SMA Large Cap Index CBOE BuyWrite on ETF Asset Classes: TLT, USO, GLD, SLV CBOE Stabilis Index 4

5 CBOE Russell Delta BuyWrite Index Russell 2000 Index Call Option written will be the strike nearest to the 30-Delta January 2007 through November

6 CBOE Russell Delta BuyWrite Index 6

7 Trading Signals from Option Skew A symmetric or flat option skew has historically been linked to rising markets 7

8 CBOE S&P 500 SMILE Index SMILE alternates between a risk reversal (short 1M 25-delta put and long 1M 25- delta call flat skew) and a short strangle (short 1M 25-delta put and short 1M 25-delta call steep skew) conditional on the symmetry of the SPX option skew or smile. 2,500 2,000 1,500 1, SMILE SPTR January 1988 through November

9 Educating Investors - Traditional Approach Long S&P 500 Long ATM Put Short 10% OTM Put Short OTM Call (call premium to cover cost of put spread) Long S&P 500 Long ATM Call Short 2 OTM Call (call premium to cover cost of Long ATM call) 9

10 Innovative New Approach Selling the cake, not the recipe Purchased 1-yr FLEX Call Option with strike = 50% of SPY closing price Written 1-yr FLEX Put Option with strike = 50% of SPY closing price Written 1-yr FLEX Put Option with strike = 90% of SPY closing price Purchased 1-yr FLEX Put Option with strike = 100% of SPY closing price Call 1-yr FLEX Option with strike = 100% of SPY closing price Written 1-yr FLEX Call Option with strike = Cap RollDate(i) Vest is an investment advisory firm registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Vest is a wholly owned subsidiary of Vest Financial Group Inc. Vest Financial Group, Inc is a majority-owned and controlled subsidiary of CBOE Vest, LLC, a subsidiary of CBOE Holdings, Inc. (the latter two entities, collectively, "CBOE"). 10

11 Target Outcome Monthly Sub-Index Series 12 monthly index series that roll on the third Wednesday of each month Buffer Protect Index January Series (Ticker: SPRO01) Buffer Protect Index February Series (Ticker: SPRO02) Buffer Protect Index March Series (Ticker: SPRO03) Buffer Protect Index April Series (Ticker: SPRO04) Buffer Protect Index May Series (Ticker: SPRO05) Buffer Protect Index June Series (Ticker: SPRO06) Buffer Protect Index July Series (Ticker: SPRO07) Buffer Protect Index August Series (Ticker: SPRO08) Buffer Protect Index September Series (Ticker: SPRO09) Buffer Protect Index October Series (Ticker: SPRO10) Buffer Protect Index November Series (Ticker: SPRO11) 500 Buffer Protect Index December Series (Ticker: SPRO12) Enhanced Growth Index January Series (Ticker: SPEN01) Enhanced Growth Index February Series (Ticker: SPEN02) Enhanced Growth Index March Series (Ticker: SPEN03) Enhanced Growth Index April Series (Ticker: SPEN04) Enhanced Growth Index May Series (Ticker: SPEN05) Enhanced Growth Index June Series (Ticker: SPEN06) Enhanced Growth Index July Series (Ticker: SPEN07) Enhanced Growth Index August Series (Ticker: SPEN08) Enhanced Growth Index September Series (Ticker: SPEN09) Enhanced Growth Index October Series (Ticker: SPEN10) Enhanced Growth Index November Series (Ticker: SPEN11) Enhanced Growth Index December Series (Ticker: SPEN12) 11

12 Target Outcome Sub-Index Series 12 monthly index series that roll on the third Wednesday of each month SPRO SPEN 12

13 CBOE S&P 500 Buffer Protect Index Series CBOE S&P 500 Enhanced Growth Index Series CBOE S&P 500 Buffer Protect Index (SPRO) Series is designed to buffer protect against the first 10% of losses due to a decline in the S&P 500, while providing upside participation to a capped level. CBOE S&P 500 Enhanced Growth Index (SPEN) Series is designed to provide 2x leveraged returns on the appreciation of the S&P 500 Index up to a capped level while providing one-to-one exposure to any losses due to a decline in the index. December 2005 through September

14 Actionable Information Content in Social Media Social Market Analytics - SMA Raw Materials 14

15 Recent Example of Twitter Beating The News SMA sentiment signals are predictive for various time periods. Signal is predictive for shorter term trading in direction of sentiment. Longer term signal identifies a strong negative shock as a buying opportunity. Edge half-life longer for less popular names. Type of momentum factor? 15

16 CBOE SMA Large Cap Index The CBOE SMA Large Cap Index (SMLC) measures the return of a hypothetical portfolio of 25 stocks with high SMA S-Scores that is rebalanced on a daily basis. The stocks are selected from the CBOE Large-Cap Universe, which is comprised of stocks that (a) are in the top 15% capitalization tranche of stocks that are the underlying for options listed on the CBOE and (b) whose market capitalization is greater than or equal to $10 billion. September 2014 through November

17 CBOE BuyWrite on ETF Asset Classes Sell a standard monthly ATM Call option 17

18 CBOE BuyWrite on ETF Asset Classes Monthly Return Histogram 18

19 Stabilis US Index Stabilis US Index is a dynamic asset allocation strategy that derives its trading signals from regime changes in the CBOE Volatility Index (VIX) and the CBOE CBOT 10-yr US Treasury Note Volatility Index (TYVIX). The concept underpinning Stabilis is that the interplay of the TYVIX and VIX Indexes has historically predicted the relative performance of diversified equities, bonds and cash. Broad Market Calm Isolated Anxiety in Equities Isolated Anxiety in Bonds Broad Market Panic TYVIX High regime: TYVIX breaks above 90 quantile of past 6 months TYVIX Low regime: TYVIX beaks below 10 quantile of past 6 months VIX High regime: VIX breaks above 90 quantile of past 6 months VIX Low regime: VIX beaks below 10 quantile of past 6 months 19

20 Stabilis US Index Stabilis has significantly higher risk adjusted returns than the Benchmark (60% SPY, 40% AGG) For more information, visit apps.appliedacademics.com/stabilis 20

21 Framework for Strategy Indexes 21

22 Disclaimer Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling OPTIONS or from the Options Clearing Corporation at The information in this presentation is provided solely for general education and information purposes. No statement within this presentation should be construed as a recommendation to buy or sell a security or to provide investment advice. The CBOE S&P 500 BuyWrite Index (BXMSM), CBOE S&P 500 2% OTM BuyWrite Index (BXYSM), CBOE Russell 2000 Conditional BuyWrite Index (BXRCSM), CBOE S&P Collar Index (CLLSM) and CBOE S&P 500 PutWrite Index (PUTSM) (the Indexes ) are designed to represent proposed hypothetical buywrite strategies. Like many passive benchmarks, the Indexes do not take into account significant factors such as transaction costs and taxes. Transaction costs and taxes for a buy-write strategy could be significantly higher than transaction costs for a passive strategy of buying-and-holding stocks. Investors attempting to replicate the Indexes should discuss with their brokers possible timing and liquidity issues. Past performance does not guarantee future results. These materials contain comparisons, assertions, and conclusions regarding the performance of indexes based on backtesting, i.e., calculations of how the indexes might have performed in the past if they had existed. Backtested performance information is purely hypothetical and is provided in this document solely for informational purposes. Back-tested performance does not represent actual performance and should not be interpreted as an indication of actual performance. The methodology of the Indexes is owned by Chicago Board Options Exchange, Incorporated (CBOE). This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-cboe product or service described in this presentation. CBOE, Chicago Board Options Exchange, CBOE Volatility Index Execute Success and VIX are registered trademarks and BXM, BXR, BXY, CLL, LOVOL, PUT and VXTH are servicemarks of CBOE. Standard & Poor's, S&P, and S&P 500 are registered trademarks of Standard & Poor s Financial Services, LLC and are licensed for use by CBOE. Financial products based on S&P indices are not sponsored, endorsed, sold or promoted by Standard & Poor s, and Standard & Poor s makes no representation regarding the advisability of investing in such products. MSCI, and the MSCI index names are service marks of MSCI Inc. ("MSCI") or its affiliates and have been licensed for use by CBOE. Option contracts on any MSCI index ( Index Contracts ) are not sponsored, guaranteed or endorsed by MSCI, its affiliates or other parties involved in, or related to, making or compiling such MSCI index. Russell, Russell 1000, Russell 2000, Russell 3000 and Russell MidCap are registered trademarks of the Frank Russell Company, used under license. FTSE and the FTSE indexes are trademarks and service marks of FTSE International Limited, used under license. Copyright 2016 CBOE. All Rights Reserved. 22